Evident in the recently released First Quarter (Q1) Gross Domestic Product (GDP) report is the weak state of the Nigerian economy which has barely grown above 2 percent since its recovery from recession in the second quarter of 2017.
The poor performance shows the need for market-moving reforms across sectors upon the swearing-in of President Muhammadu Buhari for a second term of four years in order to improve economic growth and development.
According to the GDP report released by the National Bureau of statistics (NBS) on Monday, the Nigerian economy expanded at a slower rate in Q1, 2019 by 2.01 percent, 0.37 percentage points lower than the 2.34 percent recorded in Q4 2018.
Analysis of the report reveals that the slowdown in the growth of the Nigerian economy was a resultant effect of contractions in both the oil and non-oil sectors of the economy.
The oil sector of the economy shrunk by -2.40 percent in Q1 2019, while growth in the non-oil sector slowed to 2.47 percent, against 2.70 percent in the previous quarter (Q4).
Achieving the targets set in Nigeria’s Economic Recovery and Growth Plan (ERGP) now seems almost impossible when benchmarked against the current state of the economy, necessitating a change of direction by the Federal Government.
Analysts have, therefore, pointed out that upon swearing-in of President Buhari on May 29, the administration must carry out reforms in the oil and gas sector, financial sector, public administration, health and education, manufacturing and agriculture sectors to put a halt to rising unemployment, insecurity and hopelessness among young Nigerians.
Passage of PIB and policy framework on asset security
The oil and gas sector of the Nigeria economy, according to the Q1 2019 GDP report, maintained its trend in the negative after the sub-sector entered into a recession in the second quarter of 2018 against a growth by 14.02 percent in Q1 2018.
While the sector showed signs of improvements in Q3 and Q4 2018, it worsened further in Q1 2019 with a negative year-on-year growth of -2.40 percent.
Amongst factors contributing to the poor performance of the sector are issues surrounding the Petroleum Industry Bill (PIB) which is yet to be passed.
“One of the challenges around the sector is the lack of certainty about the prospect for reforms in the industry,” said Omotola Abimbola, research analyst at Chapel Hill Denham. “We have a PIB which hasn’t been passed for over a decade after becoming a public subject of discourse.”
This has hindered lot of oil and gas majors who are interested in investing in Nigeria who seek “a clear policy direction before they can commit capital into the sector”, Omotola said.
In an attempt to restructure the oil and gas sector of the economy, the PIB was drafted in 2007 to address salient points around unbundling and commercialisation of the Nigerian National Petroleum Corporation (NNPC), transformation of the existing joint ventures between multinational oil companies and the NNPC, deregulation of the downstream sector, creation of new regulatory bodies and introduction of a new fiscal regime that sought to increase overall government take.
However, the reality today is that the PIB is still being patiently anticipated by the industry with cries to various past administrations on the need to pass the bill.
Meanwhile, the sector has struggled to produce above 2.0 million barrels per day, maintaining average daily oil production at 1.96 mbpd as recorded in the Q1 2019 GDP report.
Amongst other factors, the need to create policy framework around the security of assets within the industry especially in Niger Delta has been raised to solve the industry’s production deficit.
“We have begun recording more cases of vandalism in the Niger Delta of pipelines and oil and gas-related infrastructure,” Omotola told BusinessDay.
Sale of public enterprises, rationalisation of overheads and recurrent expenditure
Public administration, having contracted some 14 percent in the first three months of 2019, emerged the worst-performing sector in Africa’s largest economy, according to data released by the NBS.
The sector maintained its negative growth trajectory to record its biggest slump since previous five quarters.
“I am not surprised the public administration sector is still in recession. Gross inefficiencies to ably allocate resources, manage funds and redistribute income, financial recklessness and corruption are literally killing the sector day-by-day,” Noah Ojewoye, a Lagos-based political economist, told BusinessDay.
In the bid to restore growth as contained in the county’s ERGP, privatisation of selected public enterprises, assets and fiscal consolidation through cost-cutting measures such as rationalisation of overheads and recurrent expenditure, were some strategies outlined by the Federal Government to achieve its target growth in 2020.
“While the sale of public enterprises will put some revenue in the pockets of the government and cut down significantly cost excesses, it will also see private individuals run it better, hence translate into growth in the economy,” said an analyst who pleaded anonymity.
Reforms needed in the manufacturing sector
Q1 2019 figures released show that the manufacturing sector emerged the fifth worst performing with 0.81 percent expansion. Significant slowdown in the sector can be attributed to election uncertainty during the period, decrepit infrastructure, tough operating environment and worsening economic indices.
Of the 14 sub-sectors in this sector, motor vehicles & assembly with 13 percent expansion appreciated the most, trailed by plastic and rubber products at 4.36 percent, and cement and non-metallic.
One of the broad objectives of the ERGP is to restore growth by focusing on economic diversification, with a particular focus on agriculture, energy, and MSME-led growth in industry, manufacturing, and key services by leveraging science and technology.
Nigeria’s manufacturing sector has been highly susceptible to the harsh economic conditions since it contracted by 4.38 percent in Q3 2016, largely due to difficulty in accessing foreign exchange for importing intermediate goods and raw materials, and falling consumer demand.
This contraction is as a result of infrastructural bottlenecks and an uncompetitive business environment.
The government said it intends to accelerate implementation of the National Industrial Revolution Plan (NIRP) through Special Economic Zones (SEZs), with focus on priority sectors to generate jobs, promote exports, boost growth and upgrade skills to create 1.5 million jobs by 2020. Sadly, little has been seen in this regard.
Emeka Eze, an economist, said the government must address the state of infrastructure and simplify the operating environment. He said banks must be encouraged to lend to manufacturers at friendly interest rates.
“A revitalised manufacturing sector will create jobs, stimulate foreign exchange earnings and grow micro, small and medium enterprises (MSMEs). The involvement of small businesses in the service sector is a major lever for economic recovery,” he said.
Although there have been some positives since the launch of Presidential Enabling Business Environment Council (PEBEC), more still needs to be done if the target to elevate Nigeria above the 100 rank in the World Bank’s Doing Business Report by 2020.
Reforms needed in health and education
Healthcare still remains a major challenge to the administration with the despicable state of public health facilities across the country, coupled with the migration of health practitioners in droves to other parts of the world that have better remuneration and health facilities.
A recent report by the United Nations Children Fund (UNICEF) places Nigeria in the 11th position in the global ranking where new-born babies die due to lack of assistance during delivery, poverty, conflict and weak institutions.
According to the ERGP document of the Federal Government, it plans to improve accessibility, affordability, and quality of healthcare by rolling out the National Health Insurance Scheme across the entire country.
The WHO recommends 1 doctor to 600 patients, but sadly, Nigeria has 1:4,000. Data from the Federal Ministry of Health show that there are currently an estimated 45,000 doctors in the country.
Lanre Oguntoyinbo, a medical doctor said no fewer than 155,000 additional doctors at the ratio of one doctor to 1,000 people would be needed in Nigeria to achieve the Universal Health Coverage (UHC).
While the number of out-of-school children keeps growing, analysts say the government must come up with policies that will prepare the education sector for the jobs of tomorrow. The country has the highest number of out-of-school children.
“The government must guarantee access to basic education for all, improve the quality of secondary and tertiary education, and encourage students to enrol in science and technology courses,” he said.
Elimination of multiple FX rates
Upon the reappointment of the governor of the Central Bank, Godwin Emefiele, there has been heightened expectation of an eradication of multiple exchange rates in the Nigerian FX space.
The International Monetary Fund (IMF) recently reiterated its position on the need for Nigeria to eliminate its multiple rates.
Considering the precarious fiscal position of the Nigerian economy, sources confirmed to BusinessDay that possible ways of solving some revenue challenges of the government include to move FX rates from official rate of N305/$1 to market-determined rate at N360/$1. This will translate to more money for the FGN to carry out its functions.
Also, the current state of Nigeria’s total debt stock is N2.88 trillion above the ERGP 2020 target of N21.51 trillion, representing a gap of 13.39 percent as reported by analysts at FDC.
An increase in government revenue through a shift towards market-determined rates could lessen dependency on domestic and external debts.
Eliminating petrol subsidies
There are debates as to whether or not the Federal Government should keep its subsidy provision on petrol. Experts, however, have stated that the removal or reduction in subsidy levels would help the government channel these funds into more productive projects that would spur growth in the economy considering how much the government spends on petrol subsidy.
According to NNPC’s under-recovery cost report in 2018, amount spent on petrol subsidy by the Federal Government amounted to N730.9 billion with fuel price fixed at N145.
Totally eliminating fuel subsidy will push petrol prices near N250 per litre, at par with international petrol prices. However, if the government considers a 38 percent increase in fuel prices to N200, it will save the Nigerian treasury about N277.23 billion, while totally eradicating subsidy will save the government N730.9 billion.
Power sector reforms
The Federal Government in 2013 finally implemented the Electricity Power Sector Reform Act of 2005 – some eight years late. The main kernel of the Act was the privatisation of the nation’s power assets. These assets that were hitherto managed for the government by the Power Holding Company of Nigeria (PHCN) were classified into two – the power generating companies (GenCos) and the power distribution companies (DisCos) which were sold to the private sector, with the government retaining some equity interests.
But the nation’s generated power, at a maximum output of 4,000MW, was awfully below demand, leading to power rationing which had defined the nation for decades. In response, the government had embarked on the development of generation assets, which it proposed for future sale.
To deepen economic growth, experts have asked government to imperatively implement a power sector reform, which should include the conversion of the N1 trillion power sector debts into equity, and to adopt a cost-reflective tariff.
Since the power sector privatisation in 2013, the Nigerian Electricity Regulatory Commission (NERC) has failed to review electricity pricing six times under the Multi Year Tariff Order (MYTO) it instituted to price electricity, a failure that has fuelled illiquidity in the sector and caused shortfalls of nearly N1.4 trillion.
Deregulation of the downstream oil sector
In the last 10 years, investors in the nation’s capital market have continued to demonstrate low appetite towards shares of companies in Nigeria’s oil and gas downstream sector, thanks to plethora of challenges, which have virtually wiped out the margins of the oil marketing and trading companies, as well as other importers of petroleum products.
Before now, the sector was the darling of all – government, investors or general public. However, recent analysis revealed the situation seems not to be the same again for listed firms in the sector, such as Oando plc, Forte Oil plc, Total Nigeria plc, MRS Oil Nigeria plc, Conoil plc and 11 plc (formerly Mobil Oil Nigeria plc) under the umbrella of Major Oil Marketing Association of Nigeria (MOMAN).
Facing the challenges in the sector, MOMAN suggested some important strategic steps which include full deregulation of the sector.
“Nigeria as the largest market in Africa offers unique opportunities for investment in the petroleum downstream sub-sector,” said a report by PricewaterhouseCoopers (PwC).
“However, the government needs to create the necessary business environment through price liberalization and strong independent regulation. In addition, challenges around pipeline infrastructure, technology, supply consistency and capital need to be addressed,” PwC said in its report titled ‘Nigeria: looking beyond oil’.
DAVID IBIDAPO & OLUFIKAYO OWOEYE
